Morgan Stanley, Betsy Graseck (bank analyst)
Bank investors’ eyes were “glued to the yield curve last week,” with Trump’s tariff tweet on Thursday, Graseck wrote in a note. They’re now asking about Morgan Stanley’s net interest margin (NIM), outlook.
Graseck didn’t change her NIM assumptions -- yet. “We bake one additional cut of 25 basis points in 2019 in-line with our economist, and bake in the 10-year at 1.75% by mid 2020,” she wrote. She’ll update NIM and earnings per share estimates “if it looks like these trade tariffs are going through as September approaches.”
Morgan Stanley, Michael Zezas (policy strategist)
“The dynamics of U.S.-China negotiation and macro conditions mean the next round of tariffs will likely be enacted, and investors are likely to behave as if further escalation will follow in 2019 until markets price in impacts,” Zezas wrote. “This supports our core view of weaker growth and skews the Fed dovish.”
Zezas sees incentives for the U.S. to escalate quickly. If the administration “understands the Fed’s trade policy reaction function, then it may also perceive that a more rapid escalation could deliver one or more of three beneficial points ahead of the 2020 election: 1) A quicker, potentially more aggressive Fed stimulus response that could help the economy heading into the election; 2) More time to re-frame the potential economic downside; and 3) A major concession by China (not our base case, but it is, of course, a possibility).”
--With assistance from Ryan Vlastelica.
This article was provided by Bloomberg News.